Sri Lanka and India travel boost in focus as Sri Lanka plans major overhaul of its national carrier ahead of tourism revival

Published on November 10, 2025

The government of Sri Lanka has moved to comprehensively reform its national airline in response to mounting losses and unsuccessful privatisation attempts. The loss-making flag carrier has been placed at the centre of an ambitious restructuring strategy, with the aim of transforming it into a more efficient and tourism-ready entity. In the process, the travel-and-tourism sector for Sri Lanka—and neighboring India as a key source market—is expected to receive renewed attention and investment. The restructuring applies to the airline’s entire management model, debt profile, and operational footprint. With the stakes high for the island nation’s image as a tourism destination and its fiscal health, the overhaul is positioned as a critical component of Sri Lanka’s broader recovery and growth plan.

Context of the restructuring

In Sri Lanka the government has acknowledged that attempts to hand over management control of the national airline to private investors have not succeeded. Efforts to find viable buyers were conducted over successive administrations, but eventually concluded without any takers. This reality has triggered a decision to restructure the carrier proactively rather than pursue further divestiture. The move comes amid the country’s larger fiscal and economic recovery efforts following financial crisis and debt burden. As part of the country’s tourism-oriented revival, the airline is being viewed as a critical piece in connecting Sri Lanka more effectively with source markets such as India, the United Kingdom, China and Germany.

The financial burden and government obligations

The national flag carrier in Sri Lanka has accumulated substantial losses over time. According to the Auditor General’s report, the accumulated loss stood at approximately USD 2 billion (SLRs 596,461 million) as of March 31, 2025. Defaulted debt of around USD 210 million has also been reported. The airline’s borrowing included a USD 175 million five-year bond which is now in arrears. These losses and debts have contributed to the airline’s classification by the International Monetary Fund (IMF) as one of the state-owned enterprises that pose a heavy burden on the national treasury and therefore must be reformed for the country’s macro-economic stability.

Tourism and aviation links with India and beyond

For Sri Lanka, the tourism sector plays a major role in economic recovery and growth, and successful aviation connectivity is central to that objective. India remains the leading source market, followed by other countries such as the UK, Germany and China. The restructuring of the national airline is thus being seen not only as a fiscal necessity, but also as a tourism-strategy initiative. A revamped carrier can offer improved routes, better service standards and enhanced appeal to inbound travellers from India and neighbouring regions. Improved air connectivity will help Sri Lanka position itself as a more attractive and accessible destination, thereby reinforcing the travel-and-tourism segment.

Key features of the planned overhaul

The government has outlined several components of the restructuring plan. The airline’s management has been tasked with formulating a detailed business plan by early next year, with restructuring hoped to be completed by the end of December. If restructuring proves unsuccessful, alternative action will be pursued. Importantly, the airline is not being contemplated for shutdown; the government has resisted such a move to prevent further budgetary bleeding and tourism disruption. The overhaul will include operational efficiency improvements, restructuring of debt, and review of management practices. A committee has been formed under the Presidential Secretariat to investigate past irregularities, signalling efforts to improve governance and accountability.

Implications for the travel and tourism sector

This restructuring presents a potential turning point for Sri Lanka’s travel industry. A financially stable and better-managed national carrier can underpin growth in tourist arrivals, especially from India. Enhanced connectivity could lead to new flight routes, more competitive service offerings and stronger integration between air transport and tourism infrastructure. For travellers from India, Sri Lanka could offer improved ease of access, flight schedules and overall experience. The ripple effects may include increased hotel occupancy, expanded tour operations and greater economic benefit throughout the tourism value chain. Furthermore, by stabilising its only national carrier, Sri Lanka would strengthen its image as a reliable destination for international travellers.

Challenges and risks ahead

While the intent behind the overhaul is clear, several challenges will need to be addressed. The airline has long suffered from structural inefficiencies, fleet constraints and external cost pressures such as engine repair, maintenance delays and rising operational costs. The report for 2024/25 noted revenue of LKR 296.5 billion but still a net loss of LKR 7.6 billion due to unscheduled repair costs and finance charges. Supply chain constraints affecting aircraft availability and maintenance have further hampered operations. Turning around the carrier’s performance will require not only financial restructuring but also operational transformation, cultural change, and sustained governance improvement. For the tourism sector, any disruption in flight connectivity or quality issues could undermine visitor confidence.

Wider regional significance

For India-Sri Lanka travel dynamics, a healthier Sri Lankan airline holds multiple benefits. It supports bilateral tourism flows, strengthens air-links in the Indian Ocean region and positions Sri Lanka as a strategic transit or stopover destination for travellers from South Asia, Europe and beyond. A revitalised national carrier may also engage in partnerships or codeshares with Indian carriers, enhancing route networks and passenger convenience. Regionally, the move of Sri Lanka to restructure rather than privatise outright reflects a broader trend among nations seeking to retain strategic control over aviation infrastructure while integrating tourism growth goals.

What tourists and industry stakeholders should watch

Travel-industry observers, tour operators and prospective visitors should monitor several indicators in the coming months. These include announcements of new flight routes or frequency increases between India and Sri Lanka, improvements in service standards on board the national carrier, and any promotional partnerships targeting inbound tourism. Additionally, clarity on the airline’s business plan and restructuring milestones will serve as a signal of commitment. For travellers, improved connectivity may translate into better deals, more schedule options and enhanced destination experience in Sri Lanka. For the tourism industry, this may lead to renewed investment in hotels, tours, hospitality services and local attractions.

Conclusion

The decision by Sri Lanka to overhaul its national airline marks a pivotal moment in the country’s travel-and-tourism strategy as well as its economic recovery efforts. By addressing the longstanding liabilities and inefficiencies of its flag carrier, the government is seeking to build a stronger foundation for growing visitor arrivals—especially from India and other key markets—and for sustaining the viability of the airline itself. While risks remain and the path to turnaround will be complex, the commitment to reform signals optimism for the travel industry and for Sri Lanka’s position as a competitive tourism destination in the region.